Dodd-Frank bill seeks to crack down on forex arena
August 7, 2010
Congress took a new approach with the CFTC in the Dodd-Frank bill. The CFTC was dragging its feet on Congress's CFTC Reauthorization Act of 2008 (part of the Farm Bill) calling for forex regulation, which had been mostly overlooked by regulators for decades. With Dodd-Frank, retail forex trading will become illegal for non-eligible contract participants (most retail traders) unless the CFTC finishes its new forex regulations in short order (Dodd-Frank Bill Section 742(c)). The comment period on the CFTC proposals published in January expired and I expect rules to be published soon.
We imagine the CFTC will drastically reduce allowable forex leverage from existing 100:1 to a significantly lower amount, but perhaps not as far as its proposed rule change of 10:1 leverage. Will American forex traders be able to continue using foreign trading platforms to escape the reach of Fin Reg and the CFTC (including these new rules)? You can follow the progress of these regulatory changes here. Also, see the WSJ article "Financial Bill Could Set The Stage For Uneven Retail Forex Rules" dated July 30, 2010.
Dodd-Frank Section 742(c) has two areas of concern. It updates the Commodity Exchange Act (CEA) Section 2(c)(2)(D) Spot Commodities (Metals) and Section 2(c)(2)(E) Spot Forex. Google these sections to learn more.
Goldman Sachs told one of the largest prop-trading firms to change its payouts to prop traders to 80 percent or less, down from 100 percent. FINRA Regulatory Notice 10-18 said that 100 percent payouts were indicative of “beneficial owners” (disguised customer accounts and these firms are not registered customer-account broker dealers). Goldman seems to be closely following all rules now to stay out of trouble with the SEC. (Click here for the background on this issue.)
These hot topics, along with those listed below, are covered in this week's podcast. Click here to listen.
Trader tax status, mark-to-market accounting and entities.
Update on the SE tax loophole for investment managers. Recent Republican filibusters blocked repeal of this tax loophole from current jobs and tax extender bills. Green explains how investment managers use S-Corps to reduce SE tax. He further explains how it's the reverse effect for traders.
Should prop traders join prop trading LLC-firms as an entity member or as an individual? Green points out how using an entity can be better for legal protection and better for tax reasons too - unlocking the opportunity for AGI deductions (retirement and health insurance premiums).
Foreign trading to escape Fin Reg and tax implications.
Commentary from Green sprinkled in to Q&A.
Brent Gillett on new English-version Form ADVs.
Posted 6 hours, 11 minutes ago on August 7, 2010
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